January 28, 2005

Framing The Health Care Debate

I see the president is swinging back into action with his proposal for Health Savings Accounts and other health care goodies. Beh. Hopefully we've all seen the basic arguments against these ideas by now (for a refresher see this or this). No need to rehash the talking points just yet.

But if we're going to have a big health care debate—and I hope we do!—let's put a few ground rules in place. There are three distinct "big dilemmas" at issue here: covering the uninsured, controlling health care costs, and improving the quality of care. They all need to be looked at separately, and in general they all require somewhat distinct policy approaches.
The first issue, covering the 44 million uninsured, is the easiest to get a handle on; it simply requires a lot of money. Period. Now some methods of expanding coverage are obviously more expensive than others, and the differences often comes down to "targeting". Here's what I mean: If a proposal to expand coverage ends up attracting a lot of people who already have coverage, then it will obviously require a lot more money to cover X number of previously uninsured people. For instance, a recent paper by Jonathan Gruber suggested that simply expanding Medicaid was the most cost-effective way of covering 3 million previously uninsured people, because it attracted the fewest outsiders. Unfortunately, Medicaid targets so well because it sets up various bureaucratic barriers to entry and administrative hassles, so much so that many Americans eligible for Medicaid do not, in fact, enroll in Medicaid. There are a whole legion of other problems with the program, but I won't get into that now. You get the idea.

The second problem, controlling costs, is the one that attracts all the attention. But as you would guess, it's extremely difficult to accomplish. Bush has suggested tort reform for starters. Blah blah, we can debate this all day, but the only number that counts is $26.8 billion—that's the amount in health care spending that would be saved over the next decade by malpractice reform, as estimated by the Lewin Group. Since total health care spending is estimated to be about $29 trillion over that time, we're talking about a rounding error here. It's a non-solution.

What else? Conservatives like to flog "high deductible" insurance policies—policies with low premiums that force people to pay more costs out-of-pocket (up to the first $X, after which insurance kicks in). They're a big part of Bush's vision. The idea here is that if we're all shelling out our own money for care, we're more likely to be cost-conscious and less likely to get frivolous stuff we don't need, like wheelchairs with racing stripes or what have you. Er, maybe. More likely, though, high deductible policies simply force low-income families to cut back on care, even some necessary care. Everyone else carries on. Let's face it, if you make $100,000 a year, you're not going to skip a visit to get a "second opinion" just because you'll have to pay out of pocket. Not all people are equally price-sensitive.

Another option: President Bush is now talking about all this great new technology that will transform the industry and save us billions. Whatever. Politicians have been yapping on about the tech revolution in health care for ages. I wouldn't hold my breath for this one. Most of these changes will have to be mandated by the government, since as Phillip Longman nicely illustrated recently, most health care providers have very little incentive to take on expensive IT reforms that may not result in true savings for decades. Soviet-style innovation all the way down.

Meanwhile, many of the liberal "solutions" for controlling costs are no better. Re-importation of drugs seems sensible enough, and it will help a lot of people, but we really shouldn't be relying on other countries to control our health care costs. It's ludicrous. Meanwhile, cracking down on pharmaceutical companies via price controls doesn't seem any more efficient to me than simply expanding drug insurance coverage. Less efficient maybe.

So controlling costs is really quite tough. But here's one proposal I like touting. One of the reasons health care spending in the U.S. is so high, at least when compared to the rest of the world, has to do with wages. Health professionals must be recruited from the same talent pool used by other insanely high-paying industries (law, finance, etc.). That drives up wages and hence, since health care is very labor-intensive, overall costs. We could fix this rather easily, though, by promoting true free trade and lowering the quotas and professional licensing requirements that prevent many foreign doctors from coming to America. Voila!

Okay, then. I haven't even touched on how to improve health care quality. To be honest, that seems like the most hopeless problem of all. It's probably true that fully socialized medicine would only depress medical innovation. But it's also true, as Longman's piece demonstrated, that the free market doesn't deliver quality care either—mainly because customers simply don't put a high value on quality, even if they have loads of information about services available to them. So something in between is necessary. But what?Continue reading "Framing The Health Care Debate"